Initiating CIIRP: The Case for Express Inclusion of ARCs
Introduction
The Insolvency and Bankruptcy Code (Amendment) Bill, 2026 (“Amendment Act”), received Presidential assent on April 6, 2026. One of the highlights of this amendment is the addition of the Creditor-Initiated Insolvency Resolution Process (“CIIRP”). The introduction of the CIIRP in the Insolvency and Bankruptcy Code, 2016 (“IBC”) is significant as it provides an unprecedented opportunity for a formal out-of-court settlement mechanism between the creditors and debtors. With minimal intervention from the tribunals (“Adjudicating Authority”), it drastically cuts down litigation. However, nestled in the fine print of the Amendment lies a crucial feature that has not received adequate attention, i.e., the role of the Asset Reconstruction Companies (“ARCs”) in driving the settlement process.
CIIRP initiation rights are restricted to a category of Financial Creditors (“FC”) as notified by the Central Government. Asset Reconstruction Companies (“ARCs”), despite being one of the IBC’s most consistent users, are nowhere mentioned among the entities likely to be notified. Their eligibility is neither confirmed nor denied rather left to the executive discretion, with no notified timeline and no eligibility criteria.
This blog argues that the omission is incoherent. ARCs are already embedded within the IBC ecosystem as financial creditors and the primary institutional buyers of the stressed assets that the CIIRP is designed to resolve. Excluding them from initiating the process undermines the purpose of the reforms.
The Role of ARC in the IBC Framework
ARCs are not secondary actors in India's resolution architecture. They are an active resolution institution created by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002. Upon the assignment of a Non-Performing Asset (“NPA”), the ARC succeeds to the rights, title, and interests of the originating lender in relation to the transferred financial asset and assumes responsibility for its recovery and resolution.
The IBC’s architecture expressly accommodates the transfer of creditor rights through assignments. Section 5(7) of the IBC defines a ‘Financial Creditor’ to include any person to whom financial debt has been legally assigned. The Bankruptcy Law Reform Committee (“BLRC”) anticipated and intended the scenario where the debt does not change but only moves through secondary markets through legal assignment, and the legal rights attached to it travel with it. The Supreme Court was asked directly in Phoenix ARC Pvt. Ltd. v. Ketulbhai Ramubhai Patel whether an ARC holding assigned debt qualifies as a Financial Creditor, which was answered in the affirmative.
The legal status is not purely academic, it is integral to the IBC ecosystem. The RBI's Master Direction on ARCs, 2024, expressly recognises ARCs as critical to India's resolution ecosystem. The RBI's 2019 Prudential Framework for Resolution of Stressed Assets designates SCBs as the first stage of India's stressed asset resolution system, and SCBs, in turn, outsource such resolution to ARCs. ARCs are, institutionally, the second stage of that system.
A Framework Built on Selective Access
Under the new framework, CIIRP can be initiated by the Corporate Debtor or Financial Institutions (the types of Financial Institutions will be specified by the Central Government). This approach follows the Report of the Expert Committee on Creditor-led Resolution Approach (“Expert Committee”), which recommended that initial implementation and operationalisation of CIIRP should only be through SCBs for the reason that the establishment of default is more apparent compared to other creditors. Unlike operational debts, which are involved in disputes and thus lead to delays at the stage of admission itself, institutional financial defaults are easily verifiable through existing banking records and regulatory filings with the Information Utility. By limiting the right to trigger CIIRP to these specific entities, the new framework avoids the ‘admission trap’ of traditional CIRP, where contested claims delay admission for months.
What the Data Shows
The new framework, by limiting the initiation rights to CIIRP, does not take into account the empirical data. The data from the Report on Trend and Progress of Banking in India, 2024 – 25, by the Reserve Bank of India (“RBI”) suggests that banks continue to clean their balance sheets through the sale of NPAs to ARCs. The ratio of asset sales to the previous year’s Gross Non–Performing Assets for Scheduled Commercial Banks increased during 2024-25. To contextualise this, Chart IV. 19 of the Report specifies that the book value of assets acquired by the ARCs crossed Rs 10 Lakhs Crore as of March 2024, with banks transferring ₹42,000 crore in bad loans to ARCs in a single quarter. Systemically, ARCs are no longer marginal, rather key participants in India's resolution architecture.
This increasing reliance on ARCs as a channel for NPA resolution indicates that banks are not merely cleaning their balance sheets, but are systematically using ARCs as a parallel restructuring mechanism. The concern is not a lack of restructuring tools available with ARCs or in their efficacy, but rather the consequences of ARCs not being expressly notified or treated at par with financial institutions, which will hinder their ability to meaningfully participate in resolution processes through the newly added CIIRP.
In addition to the increasing reliance of the SCBs on the ARC to clean their balance sheets, the Report on Trend and Progress of Banking in India, 2024 – 25, on page 62 specifically shows that the IBC is now the dominant tool of recovery in India, accounting for 52.4% of total amounts recovered across all channels, up from 49.5% the previous year. Recovery rates under the IBC improved to nearly 37% in FY2024-25, far ahead of SARFAESI's 31.5% and Debt Recovery Tribunals. ARCs, embedded in this ecosystem as both Section 7 applicants and Resolution applicants under Section 29A (following the RBI's October 2022 framework), are central participants in this ecosystem.
In conclusion, the data reveals two significant observations: first, there is a consistent transfer of stressed assets from SCBs to ARCs, indicating that resolution activity is not confined to banks alone. Second, ARCs themselves use the IBC as their primary resolution tool. Therefore, excluding ARCs from initiating such resolution results in an incomplete representation of the resolution architecture and risks underestimation of the systemic resolution capacity.
What Needs to be Changed
The CIIRP's promise of faster resolution, reduced litigation, and fewer contested admissions rests on who gets to use it. An ecosystem that formally recognises ARCs as financial creditors under Section 5(7), that relies on ARCs to absorb ₹42,000 crore in bad loans in a single quarter, and that positions IBC as the primary recovery mechanism for India's banking system, cannot simultaneously treat the ARC as ineligible in the very process designed to resolve the assets it holds.
The data, taken together with the IBC's own architecture, point to a straightforward corrective measure. When the Central Government notifies eligible Financial Institutions under CIIRP, ARCs meeting the Rs. 1,000 crore Net Owned Fund threshold, the same floor applied under Section 29A for resolution applicants should be expressly included. The threshold already performs the function that the Expert Committee intended, to account for financial capacity and resolution credibility of the ARCs. India's stressed asset market has already made its structural choice, where loans originate from banks and ARCs resolve them. The notification framework must follow the same logic, or CIIRP will begin its life as a reform built for only half the ecosystem it was designed to serve. Bringing ARCs within the notified category at launch, rather than leaving their status to executive discretion, is what will let CIIRP function as the reform that addresses the entire IBC ecosystem consistently and equally.
*The author is a student at National Law University Delhi.
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